To say we are at a point of decision is certainly an understatement. Price could not be squeezed anymore between daily uptrend channel support and 4-hour downtrend channel resistance at the 1.2550 ahead of tomorrow's all-important FOMC announcement. What further strengthens the validity of this level is daily 38.2% Fib retracement, along with the 1.618 extension from the May range at 1.2530. What does all that mean? Well, basically price could go up or down from here in a real hurry. Well thanks, Todd, that sure helps.

Seriously though, what I can tell you is that if we are south of 1.2500 after the Fed's interest rate decision tomorrow at 2:15 p.m. ET, we could be in for some wicked selling. If the Elliott Wave count shown on the chart is correct, then we are in the third wave within a bigger third wave heading lower. For those not familiar with Elliott Wave theory, look out below.

Here is a look at the basic wave structure according Elliott Wave Theory. Essentially, markets make three pushes in the direction of a single trend called impulse moves, and two pushes against the direction of a single trend called corrections, for a complete five wave sequence. You will notice that impulse waves 1, 3, and 5 are in the direction of the trend, down, and corrective waves 2 and 4 are contra-trend, or up. Now each impulse wave will sub-divide into five smaller waves. This is shown in gray. The strongest trending point on this chart is usually the third wave of any impulse move, and that goes for all third waves, regardless of size. So naturally, the strongest trending market is a third wave within a larger, wave 3, just like what's developing on the above EUR/USD chart.

Light shorts against 1.2550 can be carried tonight with generous stops, like not less than 35 points, as markets will likely be whippy overnight.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.